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Windows 7: Black Market Bound and Priced Against Progress

November 9, 2009

Thefalloftheberlinwall1989.JPGI was filtering my through TweetDeck the other day when I came across a tweet from a Ukrainian I follow on Twitter that captured something about Windows that has been bothering me for a long time. Microsoft often charges ridiculous prices that only serve to hurt developing economies.

@blogoreader: Скільки коштуватиме Windows 7 в Україні? http://j.mp/gIf0Y

Translated, it says, “How much Windows 7 costs in Ukraine”.

Since most people in the world can’t read Ukrainian (though I can), I’ve created a translated version in Google Translate.

What immediately jumped out at me is that Home Basic, the cheapest version of 7, and presumably what the average consumer would buy, is $113 USD in Ukraine (about the same as in the United States). This is an outrageous price, if Microsoft intends 7 to be taken seriously in Ukraine, and if they hope to draw even 51% of the revenue from sales of 7 there. (Why 51%? To say that you got more than the pirates.)

When I was in Ukraine from 2004 to 2006, the average monthly salary for doctors and teachers, for instance, was $50 to $100 a month. At least, outside of the biggest cities. I don’t believe that has changed significantly. And in the past few years, Ukraine has experienced crippling inflation and a plummeting hryvnia (the local currency). In other words, doctors and teachers, as an example group of average citizens, have weaker buying power than when I was there.

So how are these people really going to afford Windows 7? It’s over a month’s salary for these people. And in some cases, over two month’s salary. Are they REALLY going to have any incentive NOT to pop over to the black market and pick up a copy that costs a fraction of that price?

When I was in Ukraine, the black market price would have been about $5 to $10, at the most. Which is why something like 98% of all software used in Ukraine was unlicensed. Can you really blame them?

In 2006, $5 in Ukraine equalled 25 hryven. But, in terms of real cost, 25 hryven felt like $25. So, if I had to buy something for 25 hryven, it didn’t feel like $5 to me, it felt like $25. (Remember, I was a Peace Corps Volunteer paid a living allowance that was intended to somewhat simulate what it felt like to be a local). There was no way I would have spent $113 on an operating system then. First, that would have been half of my living allowance for the month, which had been calculated to cover my costs of living, and without much to spare. So, that meant food on the table or operating system. Second, that would have converted to roughly 565 hryven. Which, as I said, would have felt like $565. There’s no way I would have bought Windows 7 if I were an average Ukrainian, when I could have bought it for five or ten percent of that price.

Now consider that the hryvnia is dropping in value against the dollar and local prices are going up.

Of course, one could make the argument that Microsoft can charge whatever it wants to, and Ukrainians don’t really have a right to being able to afford 7. Sure. But when unlicensed copies of 7 start penetrating the market, and Microsoft realizes only a small fraction of the revenue for it, don’t be surprised, Microsoft.

As an international media developer, I see another crucial issue here. Microsoft is essentially creating a paywall that would disproportionately keep Ukrainians out vis-a-vis wealthier countries. That price of $113 represents a much smaller percentage of the average monthly salary of an American, by comparison. So, Americans are going to be able to buy licensed copies at a much higher rate.

In short, Microsoft is essentially increasing the digital divide that exists between developed and developing economies by charging them both basically the same price, regardless of the purchasing power of their respective consumers. There are already so many factors giving developed countries an advantage in digital technology. More broadband penetration. More access to computers. More opportunities for education. More people who know how to use this technology. Do we really need to price people out of licensed copies of the latest version of the most widely used operating system in the world?

As blogoreader tweeted to me, “This is true problem in our country”.

Meanwhile, Ukraine had to overcome serious piracy hurdles just to join the WTO, and to join the EU, it will face even more. Yet, to become a more competitive player in the global economy, and participate in the benefits of multilateral institutions, Ukraine faces the dilemma of cracking down on piracy versus competing by any means necessary. When you are a company as powerful and pervasive as Microsoft, your practices can have macroeconomic implications.

Microsoft, if you really want people to start paying you for your operating systems, instead of paying somebody with a DVD burner and cracking software, you’re going to need to charge a realistic price. I know Bill Gates thinks that piracy can lead to demand, as it did in China, and that down the road, people will eventually start buying licensed copies of Windows as their economy grows. I have news for you:  things haven’t been good in Ukraine for a while now, and they aren’t going to get better anytime soon. In the meantime, all you are really doing by limiting access to your technology is slowing progress that could one day lead to that increased demand in licensed copies of Windows you are counting on.

You’ve dropped prices for Windows in developing countries before. It’s time to do it again.

Photo 1:  The Berlin Wall, another famous wall challenging progress. Courtesy of Lear 21.

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One comment

  1. Speaking of the Berlin Wall – http://www.nytimes.com/2009/11/08/world/europe/08germany.html?_r=1



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